IDEAS home Printed from https://ideas.repec.org/p/bri/cmpowp/06-152.html
   My bibliography  Save this paper

Is there a Wage-Supervision Trade-Off? Efficiency Wages Evidence From the 1990 British Workplace Industrial Relations Survey

Author

Listed:
  • Andreas P. Georgiadis

Abstract

Efficiency Wages cannot be ruled out on a priori theoretical grounds and evidence is needed. Direct evidence on the effects of wages on productivity and indirect evidence from the wage structure does not seem persuasive. In this paper we offer an indirect test of the efficiency wage theory, by testing the prediction of the ‘shirking’ and ‘gift-exchange’ models of efficiency wages of a wage-supervision trade-off, using data from the 1990 British Workplace Industrial Relations Survey. We highlight the main empirical problems that hinder the estimation of the wage-supervision relationship, and we offer a novel theoretical explanation of the wagesupervision trade-off in terms of union bargaining power. We find evidence that wages and supervision are substitutes in eliciting effort for unskilled manual workers. This evidence supports principal-agent models, many of which do not have the efficiency wage property. Finally, after we test whether wages are set optimally above the market clearing level we fail to find any evidence that can rule out efficiency wages in favour of incentive contracts.

Suggested Citation

  • Andreas P. Georgiadis, 2006. "Is there a Wage-Supervision Trade-Off? Efficiency Wages Evidence From the 1990 British Workplace Industrial Relations Survey," The Centre for Market and Public Organisation 06/152, The Centre for Market and Public Organisation, University of Bristol, UK.
    • Handle: RePEc:bri:cmpowp:06/152
    as

    Download full text from publisher

    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp152.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Felix R. FitzRoy & Kornelius Kraft, 1987. "Cooperation, Productivity, and Profit Sharing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(1), pages 23-35.
    2. Wadhwani, Sushil B & Wall, Martin, 1991. "A Direct Test of the Efficiency Wage Model Using UK Micro-data," Oxford Economic Papers, Oxford University Press, vol. 43(4), pages 529-548, October.
    3. Mark B. Stewart, 1983. "On Least Squares Estimation when the Dependent Variable is Grouped," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 50(4), pages 737-753.
    4. Leonard, Jonathan S, 1987. "Carrots and Sticks: Pay, Supervision, and Turnover," Journal of Labor Economics, University of Chicago Press, vol. 5(4), pages 136-152, October.
    5. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
    6. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
    7. Brunello, Giorgio, 1995. "The Relationship between Supervision and Pay: Evidence from the British New Earnings Survey," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(3), pages 309-321, August.
    8. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, Decembrie.
    9. Levine, David I, 1992. "Can Wage Increases Pay for Themselves? Tests with a Production Function," Economic Journal, Royal Economic Society, vol. 102(414), pages 1102-1115, September.
    10. Salop, Steven C, 1979. "A Model of the Natural Rate of Unemployment," American Economic Review, American Economic Association, vol. 69(1), pages 117-125, March.
    11. Alan Manning & J Thomas, 1997. "A Simple Test of the Shirking Model," CEP Discussion Papers dp0374, Centre for Economic Performance, LSE.
    12. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    13. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    14. Stewart, Mark B, 1990. "Union Wage Differentials, Product Market Influences and the Division of Rents," Economic Journal, Royal Economic Society, vol. 100(403), pages 1122-1137, December.
    15. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
    16. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(4), pages 543-569.
    17. Peter Cappelli & Keith Chauvin, 1991. "An Interplant Test of the Efficiency Wage Hypothesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 769-787.
    18. Erica L. Groshen & Alan B. Krueger, 1990. "The Structure of Supervision and Pay in Hospitals," ILR Review, Cornell University, ILR School, vol. 43(3), pages 134-1-146-, April.
    19. Robert Gibbons & Lawrence Katz, 1992. "Does Unmeasured Ability Explain Inter-Industry Wage Differentials?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 515-535.
    20. Neal, Derek, 1993. "Supervision and Wages across Industries," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 409-417, August.
    21. Chesher, Andrew & Irish, Margaret, 1987. "Residual analysis in the grouped and censored normal linear model," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 33-61.
    22. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
    23. Rebitzer, James B., 1995. "Is there a trade-off between supervision and wages? An empirical test of efficiency wage theory," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 107-129, September.
    24. Stewart, Mark B, 1987. "Collective Bargaining Arrangements, Closed Shops and Relative Pay," Economic Journal, Royal Economic Society, vol. 97(385), pages 140-156, March.
    25. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
    26. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    27. William T. Dickens & Lawrence F. Katz, 1987. "Inter-Industry Wage Differences and Theories of Wage Determination," NBER Working Papers 2271, National Bureau of Economic Research, Inc.
    28. Konings, Jozef & Walsh, Patrick P, 1994. "Evidence of Efficiency Wage Payments in UK Firm Level Panel Data," Economic Journal, Royal Economic Society, vol. 104(424), pages 542-555, May.
    29. Gordon, David M, 1994. "Bosses of Different Stripes: A Cross-National Perspective on Monitoring and Supervision," American Economic Review, American Economic Association, vol. 84(2), pages 375-379, May.
    30. Alan B. Krueger & Lawrence H. Summers, 1986. "Reflections on the Inter-Industry Wage Structure," NBER Working Papers 1968, National Bureau of Economic Research, Inc.
    31. Harry J. Holzer & Lawrence F. Katz & Alan B. Krueger, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 739-768.
    32. Gordon, David M, 1990. "Who Bosses Whom? The Intensity of Supervision and the Discipline of Labor," American Economic Review, American Economic Association, vol. 80(2), pages 28-32, May.
    33. Alan B. Krueger, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(1), pages 75-101.
    34. Erica L. Groshen, 1991. "Sources of Intra-Industry Wage Dispersion: How Much Do Employers Matter?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(3), pages 869-884.
    35. Frey, Bruno S, 1993. "Does Monitoring Increase Work Effort? The Rivalry with Trust and Loyalty," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 663-670, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John G. Sessions & Nikolaos Theodoropoulos, 2014. "Tenure, Wage Profiles and Monitoring," Research in Labor Economics, in: New Analyses of Worker Well-Being, volume 38, pages 105-162, Emerald Group Publishing Limited.
    2. Ourania Karakosta & Nikos Tsakiris, 2009. "Indirect Tax Reforms and Public Goods under Imperfect Competition," University of Cyprus Working Papers in Economics 5-2009, University of Cyprus Department of Economics.
    3. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    4. Sessions, John G., 2008. "Wages, supervision and sharing," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(4), pages 653-672, November.
    5. Seref Saygili, 1998. "Is the Efficiency Wage Hypothesis Valid for Developing Countries? Evidence from the Turkish Cement Industry," Studies in Economics 9810, School of Economics, University of Kent.
    6. Kevin Lang, 2020. "Effort and wages: Evidence from the payroll tax," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 108-139, February.
    7. Andreas Georgiadis, 2013. "Efficiency Wages and the Economic Effects of the Minimum Wage: Evidence from a Low-Wage Labour Market," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(6), pages 962-979, December.
    8. Rebitzer, James B., 1995. "Is there a trade-off between supervision and wages? An empirical test of efficiency wage theory," Journal of Economic Behavior & Organization, Elsevier, vol. 28(1), pages 107-129, September.
    9. Huang, Tzu-Ling & Hallam, Arne & Orazem, Peter & Paterno, Elizabeth M., 1998. "Empirical Tests of Efficiency Wage Models," Staff General Research Papers Archive 1325, Iowa State University, Department of Economics.
    10. Jellal, Mohamed & Zenou, Yves, 1999. "Efficiency wages and the quality of job matching," Journal of Economic Behavior & Organization, Elsevier, vol. 39(2), pages 201-217, June.
    11. Bhaskar, V. & To, Ted, 2003. "Oligopsony and the distribution of wages," European Economic Review, Elsevier, vol. 47(2), pages 371-399, April.
    12. Georgiadis, Andreas, 2008. "Efficiency wages and the economic effects of the minimum wage: evidence from a low-wage labour market," LSE Research Online Documents on Economics 19628, London School of Economics and Political Science, LSE Library.
    13. André Cieplinski, 2018. "Supervision and Work Content: Industry level evidence," Department of Economics University of Siena 776, Department of Economics, University of Siena.
    14. Joseph A. Ritter & Lowell J. Taylor, 1997. "Economic models of employee motivation," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 3-21.
    15. Dennis Dittrich & Martin G. Kocher, 2006. "Monitoring and Pay: An Experiment on Employee Performance under Endogenous Supervision," Tinbergen Institute Discussion Papers 06-098/1, Tinbergen Institute.
    16. Goldsmith, Arthur H. & Veum, Jonathan R. & Darity, William Jr., 2000. "Working hard for the money? Efficiency wages and worker effort," Journal of Economic Psychology, Elsevier, vol. 21(4), pages 351-385, August.
    17. Tetteh, Rebecca & Mohammed, Safura & Ahmed Azumah, Ayisha, 2017. "What is the effect of wages and supervision on productivity? The perspective of Sunyani Technical University staff," MPRA Paper 81473, University Library of Munich, Germany.
    18. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    19. Sang‐Moon Hahm & Katarina Mayer, 2011. "Equilibrium unemployment as a discipline device when finding employment is costly," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(2), pages 709-717, May.
    20. Derek Neal & Sherwin Rosen, 1998. "Theories of the Distribution of Labor Earnings," NBER Working Papers 6378, National Bureau of Economic Research, Inc.
    21. Albert Max & Meckl JuÈrgen, 2001. "Efficiency-Wage Unemployment and Intersectoral Wage Differentials in a Heckscher- Ohlin Model," German Economic Review, De Gruyter, vol. 2(3), pages 287-301, August.
    22. Kocher, Martin & Dittrich, Dennis, 2006. "Monitoring and Pay: An Experiment on Employee under Endogenous Supervision," CEPR Discussion Papers 5962, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Efficiency Wages; Wage-supervision trade-off; Endogeneity bias; private and Non-Unionised establishments;
    All these keywords.

    JEL classification:

    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bri:cmpowp:06/152. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cmbriuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.